Varieties and the Transfer Problem: The Extensive Margin of Current Account Adjustment

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Show simple item record CORSETTI, Giancarlo MARTIN, Philippe PESENTI, Paolo 2008-01-24T10:57:14Z 2008-01-24T10:57:14Z 2008
dc.identifier.issn 1028-3625
dc.description.abstract Most analyses of the macroeconomic adjustment required to correct global imbalances ignore net exports of new varieties of goods and services and do not account for firms'net entry in the product market. In this paper we revisit the macroeconomics of trade adjustment in the context of the classic 'transfer problem', using a model where the set of exportables, importables and nontraded goods is endogenous. We show that exchange rate movements associated with adjustment are dramatically lower when the above features are accounted for, relative to traditional macromodels. We also find that, for reasonable parameterizations, consumption and employment (hence welfare) are not highly sensitive to product differentiation, and change little regardless of whether adjustment occurs through movements in relative prices or quantities. This result warns against interpreting the size of real depreciation associated with trade rebalancing as an index of macroeconomic distress.
dc.format.mimetype application/pdf
dc.language.iso en en
dc.relation.ispartofseries EUI RSCAS en
dc.relation.ispartofseries 2008/01 en
dc.rights info:eu-repo/semantics/openAccess
dc.title Varieties and the Transfer Problem: The Extensive Margin of Current Account Adjustment en
dc.type Working Paper en
dc.neeo.contributor CORSETTI|Giancarlo|aut|EUI70002
dc.neeo.contributor MARTIN|Philippe|aut|
dc.neeo.contributor PESENTI|Paolo|aut|
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